Local Voices: 'Why Raising Minimum Wage to $15 is a Bad Idea'

By Peter Sarro (Patch contribution):

Let’s talk about why raising the minimum wage to $15 hour is a bad idea and why it will ruin small businesses.

Everyone is making this a political debate, but it is really a mathematical issue. Most businesses have a fixed number where their payroll needs to be. Since McDonald's has been the whipping boy for this example, let’s use the restaurant business.

Typically, a restaurant wants to run around 25 percent or lower for payroll. If business increases, payroll drops (say to 20 percent), which allows the restaurant to give raises and or hire more people. If business decreases, and payroll goes up (say 30 percent), the restaurant is forced to lay people off.

This example is constant for all businesses. Regardless of what they are selling, they need to account for a set payroll number. A busy shoe store might have four employees working at one time, where a slow shoe store will have only one employee. I think you get the picture.

Corporate greed occurs when sales skyrocket and they don’t give raises or hire more workers, but that’s a different argument for another day.

Let’s base this mathematical example on small business -the Mom and Pop places. So now, let's paint a picture. The restaurant has multiple employees. The dishwasher is the lowest paid employee at the current minimum wage, (presently $10 per hour in Massachusetts). The fry cook gets $12, the line cook gets $14, the manager gets $16 and the general manager gets $20 for example. There are other employees, but let’s just use these five to make the example easier. At this current pay scale the restaurant is running at 25% payroll. Around where it wants to be.

Now the government raises the minimum wage to $15 hour.

The dishwasher gets a $5 per hour raise. Is the fry cook going to stay at $15? No. He, will want what the dishwasher got and will expect $17 hour. The line cook will go to $19, the manager to $21, etc. You are not just giving the minimum wage employee a raise; you are giving everyone in the building a raise.

Somehow, people haven’t wrapped their heads around that part of the equation. Is the manager of McDonald's going to be ok with making the same $15 hr as the lowest person on the schedule? I highly doubt it. Anyway, now this restaurant's payroll goes from 25 percent to almost double that. Around 42 percent! The owner of the restaurant has to raise prices immediately to compensate for the increase in payroll, but it’s not a small amount.

So now, his prices have to almost double. Now, that $7 sandwich is $13 and that $12 pasta dish is now $20. His customers who were accustomed to the previous prices start finding other places to go and he sees his sales drop drastically in a very short period of time. With his sales down, and his payroll much higher, (even with the inevitable layoffs to scale back), he is forced to close his doors as he no longer can pay his bills or turn a profit.

This will hurt, by far, small businesses the most. Giant businesses could possibly absorb the hike, as they can raise their prices at smaller increments as they do such large volume. Walmart has come out publicly welcoming the hike, which made some people applaud them, but every retail expert realizes Walmart wants it to happen so all their smaller competition will go out of business.

You see, it has nothing to do with politics. It’s math. You can’t just give more without there being repercussions. The government is not paying for anything.

I haven't even gotten into the social ramifications of just giving people more for no other reason than "they want it." There is a reason it’s called minimum. It is meant to be low so you motivate yourself to do better, work harder, learn a skill, and educate yourself so you no longer have to work for that wage.

We are making people fat, slow and lazy, and the government is putting its stamp on it.

Photo via Shutterstock

Peter Sarro has owned JJ's Sports Bar in Northborough for seven years, and has owned other small business in the local area over the past 25 years.

What's your opinion on raising minimum wage to $15? Are you in favor of it or not? Why or not? Share in the comments section below.